THE Tobacco Value Chain Transformation Plan which was approved by government in 2021 set the bold objective of transforming the Zimbabwean tobacco industry from a market size of US$1billion to a US$5billion market by 2025.
The key pillars for the achievement of this transition would be increased production and productivity driven by a focused agronomy strategy, changes to tobacco financing models to 70% local funding, and an increase in value addition from 2% to 70% resulting in an overall net improvement in tobacco forex inflows from 12.5% to 70% of gross exports.
As 2025 beckons, production levels have reached 298m kg in 2023, a commendable milestone which has been achieved 2 years ahead of the 2025 target of 300m kg. The success on increasing production volumes has cemented Zimbabwe’s reputation as a major global primary producer of this commodity. However, despite the success on increased production levels, grower average yields remain substantially uneconomical resulting in the perennial challenges with grower viability which culminate in side marketing and credit losses for merchants who will have funded the crop.
The successes on the production front have, critically, not translated to success in the other key pillars for the transformation plan, specifically on utilization of local funding as well as value addition and net tobacco forex flows. As a result of this, it remains highly unlikely, that the lofty goal of a $5b tobacco market with net forex inflows of 70% will be achieved by 2025.
The failure to achieve changes on the funding and value addition aspects is intrinsically tied into structural issues regarding the make-up of the industry and financing models currently in place.
Since independence the tobacco industry has continued to be dominated by the major multinational corporations ( MNC’s) who have control over the global trade in leaf tobacco. With their ability to mobilise low cost funding from western financial markets, they have maintained utter dominance in the leaf tobacco space as evidenced by the fact that 93% of farmers are locked into contract production schemes from which they have failed to extricate themselves.
Whilst contract farming has revived tobacco production, concerns remain about predatory lending and debt entrapment through inflexible pricing regimes designed to keep farmers locked up in exploitative contracts.
Being headquartered externally, multinationals have maintained the extractive commodity policies from the colonial era with minimal local repatriation of export proceeds or investment in downstream beneficiation and farming communities. Issues relating to sustainability and corporate social responsibility have remained at the periphery. Clearly, the relationship between farmers and MNC’s remains transactional in nature and is not responsive to grower viability challenges or broader national development and monetary imperatives.
In the absence of direct intervention by government, the structural issues in the industry will remain the same as they have been since UDI. MNC’s will continue to exert the market power they enjoy whilst local merchants and farmers will remain economically marginalized.
The classic “pride lands” vs “outlands” model, powerfully illustrated in the Disney Classic, “The Lion King” will continue to play itself out with no prospects of change on the horizon.
In order to achieve structural change in the make up of the tobacco industry, Government needs to urgently capacitate production by locally based merchants through direct funding or guarantees on credit lines for tobacco inputs. Concessionary financing is also required to reduce local merchants cost of money and underwrite market competitiveness for purchasing and processing of tobacco.
The third pillar of support from government is assistance in establishing global customer relationships through government to government structures with friendly countries. Zimbabwean tobacco is an extremely powerful brand which needs to be marketed aggressively for national benefit with the returns being brought on-shore by merchants whose interests are locally based. Finally, financial support for local merchants needs to transcend production of the basic commodity and address the beneficiation aspect through production and export of cigarettes.
Facilities are required from development financial institutions to finance these investments. An enabling and predictable policy regime on issues such as tax breaks would also go a long way towards achievement of the value addition imperative.
In closing, the vision for a $5b tobacco industry remains a long way in the making largely due to the failure to adequately address deep seated issues relating to the structure of the tobacco industry, in particular, power asymmetry deriving from the global financial dominance of MNC’s. In the absence of urgent and effective policy interventions, the vision of grower viability and successful value addition, will remain but a mirage and Zimbabwean tobacco will continue to be sacrificed at the altar of globalization. By Professor Thandolwenkosi Siziba